2014 hot topics in renewables

2013 was a pivotal year for renewables. Products, services and other options offered to customers peaked in terms of affordability, giving customers more green power options from their utilities.

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Although reasonably priced, relatively low emission natural gas has been identified by some as a competitive threat to renewables, the economics of renewable energy, especially wind and solar, have improved substantially over the last several years due to federal tax incentives, which significantly lower prices.

However, even without the incentives, prices would likely still be lower than they were five years ago, making the incentives a successful tool in reducing the long-term costs of these energy resources, according to Ryan Pletka, associate vice president of renewable energy with Black & Veatch.

"The concerns over whether natural gas would retard the renewable energy market were supplanted by an increasing understanding of how they work together to form a working and workable system, and with new markets for large scale renewables opening up in countries, such as South Africa, the industry is now seen as a normalized part of the energy mix -- one that will continue to grow in revenue and importance," said Dr. Kerry-Ann Adamson, energy research director with Navigant Research.

A Record Year for Solar

The year 2013 was one for the record books for solar. According to the Solar Energy Industries Association (SEIA), the third quarter of 2013 was the second largest for the U.S. solar industry, and new solar electric capacity added in 2014 will generate enough clean energy to power more than 850,000 average American homes.

Although reasonably priced, relatively low emission natural gas has been identified by some as a competitive threat to renewables, the economics of renewable energy, especially wind and solar, have improved substantially over the last several years due to federal tax incentives, which significantly lower prices.

Solar became one of the leading sources of new generation in 2013 with the continued decline in equipment costs.

"[This gives] the industry the opportunity to focus on soft cost reduction as well," said Tom Solazzo, principal, PwC Power & Utilities. "Initial efforts at addressing permitting, labor, financing, and contract costs through operational efficiency and standardization are bearing fruit, with more upside potential in the future."

The installed price of solar photovoltaic power systems in the U.S. fell substantially in 2012 and the first half of 2013, according to the Lawrence Berkeley National Laboratory. Installed prices for PV systems in 2013 fell by 16 percent over the past year to $3.00/W, marking the third year in a row of significant price reductions for PV systems in the U.S., according to Brian F. Keane, president of SmartPower, a nonprofit organization that creates community campaigns for energy efficiency and clean energy.

Solar also got a federal endorsement in 2013. Making a statement in connection with the Obama administration's commitment to having 20 percent of the federal government's energy come from renewable sources by 2020, solar panels were installed on the roof of the White House last year. At that time, the nation's capital also made a statement on community solar with the unanimous vote by the City Council to bring "virtual net metering" to residents of Washington, D.C., whereby entire communities, not just individuals, build and benefit from solar power.

"On the customer side, the big news is solar, with not only prices coming down to be competitive with utility rates in many regions of the country, but also new business models… that make acquiring solar painless through turnkey installation, leases, and no upfront costs," said Bill LeBlanc, senior advisor at E Source. "Utilities have a golden opportunity in 2014 to embrace rooftop solar and community-based solar to enable their customers to achieve their desires for local and clean energy while still staying with the stable utility company."

However, most utilities are not well-positioned for this opportunity, and some utilities are being branded as being against solar.

2014 Hot Buttons

Efficient Renewables Integration. Addressing the issue of renewables integration, specifically in areas where reliability and cost issues cloud the discussion surrounding greater generation from renewables will be a hot topic in 2014, according to the Clean Coalition's John Bernhardt. A global trend in 2014 will be the push toward efficiency and making the use of renewables in the grid more efficient by implementing large-scale energy storage systems.

Utility executives must not only look to upgrade the existing power infrastructure, but must open their business plans to incorporating alternative energies and alternative ways to generate and provide energy. – Massoud Amin

"For utilities, the key message is that this… is not just in their back yard," said Adamson, "and that utilities that stick their head in the sand and keep repeating 'there's no place like home' whilst tapping their shoes together risk losing their long-term position in the energy market."

Investments in energy storage, often called the "holy grail of renewable energy," will be expensive and require support from PUCs to reach scale, according to Solazzo; however, regulatory frameworks around energy storage are beginning to emerge, and PwC expects multiple states to institute large-scale tests.

In October 2013, the California Public Utilities Commission (CPUC) adopted a decision requiring the state's investor-owned utilities to meet a total energy storage procurement target of 1,325 MW by 2020, with storage projects that will be on-line and delivering by the end of 2024. The IOUs must file their first storage procurement applications (with a proposed storage procurement plan and storage project specifications) by March 1, 2014, with their first storage solicitations in December 2014.

"The CPUC's expectation is that energy storage will serve as a means to integrate renewable supplies and reduce the need for additional gas-fired generation," said John Leslie, partner with McKenna Long & Aldridge and co-chair of the firm's Climate, Energy, and Sustainability Initiative.

"[Utility executives] must carefully watch what state and federal regulators decide to implement (or not implement) in 2014," Rodriguez said. "Betting wrong on renewable incentives could lead to heavy losses for those in the renewable energy sector."

Increased Penetration of Distributed Generation. One of the biggest areas of concern for utility executives will be the increasing penetration of distributed generation (DG), particularly solar, whereby developers offer industrial and commercial consumers the opportunity to purchase electricity from DG projects installed at their sites, at a lower cost than would be paid to the local utility. The ability of these developers to compete with utilities based on retail power prices is one of the key growth drivers for the DG industry.

"One noteworthy concern for utilities is the fact that as customers leave the utility network for DG generation, fewer customers are left paying the cost to maintain the utility distribution network," explained Adam Umanoff, partner with Akin, Gump, Strauss, Hauer & Feld LLP. "This issue was recognized in the recent extension of California's net metering rules, requiring DG consumers (who are still connected to the utility distribution system and purchase electricity from their local utility when their DG system is not generating electricity) to pay a monthly distribution network maintenance charge to their utility."

According to a survey of utility executives by PwC, more than 80 percent see DG as an opportunity, not a threat, but are divided on how to take advantage.

PwC expects to see innovation in business models, which may include utilities investing in DG outside their service territories or addressing DG inside their own markets by launching new programs under the purview of PUCs.

Net Metering. The lower price of solar and favorable state incentives have spurred strong growth of customer-sited (DG) solar. In fact, one of the hottest issues in 2013, and arguably 2014, will be the proper valuation of distributed generation. Net metering rules focusing on how ratepayers are compensated for electricity generated by a solar system and passed to the grid for the utility to sell to other ratepayers will be hotly debated.

Arizona recently made controversial changes to its existing net metering programs, and many states are still looking at how to effectively and fairly implement net metering programs.

Concerns over whether natural gas would retard the renewable energy market were supplanted by an increasing understanding of how they work together to form a working and workable system. – Dr. Kerry-Ann Adamson

"Many utilities believe that policies such as net metering provide an unfair subsidy to customer-sited solar. The value that DG solar brings to the grid, and the potential costs that it imposes, will be the subject of many rate setting investigations in the coming years," said Pletka. "Utility executives would be smart to tackle this issue as soon as possible to ensure the right market signals are being given."

Traditional Utilities at a Crossroads. Some have suggested that the "traditional" utility model is at a crossroads due to pressure associated with developing renewable, storage and energy-efficiency technologies, in addition to other factors.

Utilities have always had to account for changing dynamics within the power industry in that the demand on a utility to adapt has always been high and utility executives spend a lot of time and resources understanding material trends that will affect their business operations and bottom line, according to Franc Del Fosse, a partner with Snell & Wilmer.

"After all, the nature of how utility rates are designed and approved require utility executives to understand and effectively responds to these trends. Ultimately, the perspective that the utility model may need to change, evolve or adapt has some validity," said Del Fosse.

More specifically, Del Fosse says the areas of focus for utilities are:

How distributed generation solar will affect demand and its ratepayer base.

How renewable energy projects of all sizes will affect aging transmission systems and other infrastructure and the upgrades that will be necessary in the short and long term.

How to retire existing fossil fuel generation and increase renewable energy generation without sacrificing consistent and economically feasible power to ratepayers.

Utilities are taking different approaches to address some of these trends.

"Some utilities have chosen to develop and own distributed generation assets within and outside of their utility territory (typically through an unregulated subsidiary), while other utilities have chosen to focus on what they consider to be their core competencies in their own utility territory, which would not include owning distributed generation assets," Del Fosse said.

Microgrids. In 2013, much consideration was given to how to store, move, and incorporate renewable energy in the existing electrical infrastructure, which was not built to accommodate intermittent power flows.

In 2014, the world will turn its attention to microgrids, as they play a growing role in meeting local demand, enhancing reliability and ensuring local control of electricity over the next five years, according to research commissioned by IEEE.

"Utility executives must not only look to upgrade the existing power infrastructure, but must open their business plans to incorporating alternative energies and alternative ways to generate and provide energy," said Massoud Amin, IEEE smart grid expert and professor of electrical and computer engineering at the University of Minnesota. "Certainly, the power grid backbone also needs to become increasingly efficient, integrating renewable resources that reduce society's need for fossil-based resources, among other approaches. The upgraded backbone, combined with microgrids, will help us meet our goals for an efficient and eco-friendly electric power system achieving major energy/national security and economic growth milestones."